A constraint-based framework for strategic cost management

Since the 1980s, firms have searched for better ways to align their cost management systems with the realities of their business environments. The advent of accelerated global competitiveness, reduced product life cycles, rapid technological advancements, and inter-organizational supply chains have drastically increased the need for more effective approaches to cost management. In recent years, activity-based, constraint-based, and hybrid cost management systems have been adopted by some firms to dampen the effects of their traditional (full-absorption) costing methodologies. However, a holistic approach is needed to facilitate strategic cost management based upon organizational objectives, organizational needs and capabilities, and customer requirements. The Theory of Constraints provides the foundation for developing cost management systems that are global, integrative, and strategic in nature. A framework is presented in this paper for using a constraint-based approach to strategic cost management.